October 3, 2017 / 1:50 PM / a year ago

Top U.S. regulators confident watchdogs can ease Volcker Rule

WASHINGTON (Reuters) - Two top U.S. financial regulators told a Reuters Summit on Tuesday they were confident that watchdogs would reach an agreement to significantly reduce the burden of the so-called Volcker Rule banning banks from speculating with their own money.

The comments by Federal Reserve Board Governor Jerome Powell and Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarlo offer the strongest indication yet the country’s regulators are committed to tweaking the rule drawn up after the 2007-09 global financial crisis.

Both men also emphasized the importance of international cooperation on cross-border rule-making, rebuffing fears the United States may retreat from global regulatory forums.

Reviled by banks that say it is too burdensome and vague, the Volcker Rule can only be rewritten jointly by five U.S. regulatory agencies - including the Fed and the CFTC - meaning the process for tweaking it will be more complicated than for other rules mandated by the 2010 Dodd Frank Act.

“I am confident of what the outcome is going to be. I think we are going to be able to get to a five-agency rule on Volcker that is significantly less burdensome,” Powell told the Reuters Summit in Washington, adding, though, that it would not be a quick or easy process.

“You do have to get agreement from the agencies, that’s a process I’m going to respect. We’re just going to have to work through it, and the time will be what it is. The important thing is to get it right.”

Since its creation, large banks have lamented the Volcker Rule, arguing that it is practically impossible for regulators to discern what type of trading is barred while other activity, such as market-making, remains acceptable.

Commodity Futures Trading Commission (CFTC) Chairman Christopher Giancarlo, Federal Reserve Board Governor Jerome Powell and moderator Reuters columnist Gina Chon discuss financial regulation in Washington, U.S., October 3, 2017. REUTERS/Joshua Roberts

The costs of complying with the rule are so high that even small tweaks could save the banking industry hundreds of millions of dollars, according to analysts.

Powell said the rule, which applies to all U.S. deposit-taking institutions, hurts smaller banks that have never operated proprietary trading businesses, but added it was possible to tweak the rule so larger banks could also benefit.

“We’re looking at that. We think there’s significant flexibility to make Volcker more effective and efficient, even for the largest institutions and certainly for the smaller (ones),” Powell said.

Giancarlo said he was also confident Volcker would be revised, but warned policymakers should avoid framing the debate over the future of U.S. financial rules as a “false choice” between keeping or reversing aspects of Dodd-Frank.

Some of the most pressing financial regulatory issues - including the digitization of markets and cyber crime - are not even covered by Dodd-Frank, he added.

“The only way forward is to take account of the way markets are changing and, where we have regulations in place, make sure they’re optimized.”


Regulators worldwide have watched the United States closely following the election of Republican President Donald Trump, fearing the country may pull back from global post-crisis rules agreed by the Basel Committee of banking supervisors and the Financial Stability Board.

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On Tuesday, Powell addressed these concerns saying the global nature of financial markets made it “essential” to have forums in which regulators can discuss and agree international norms.

“We are fully committed to participating in international forums, no one should have any doubt about that,” he told the summit.

The United States and other Basel members are at loggerheads with European countries over the final shape of the Basel III post-crisis bank capital rules, with Washington pushing for a higher minimum standard. The committee has been trying to reach a deal since last year.

“I hope we’ll get it done this year,” said Powell. “There’s a good case for wrapping this up. We’d like to do that, but we’d like to do that on terms that are fair, and fair to us.”

Giancarlo signaled again on Tuesday that the United States and Europe may also be heading for another stand-off over cross-border regulation of clearing houses, which guarantee trades, having reached a hard-fought agreement on the matter just last year.

The European Commission said in May it would review its rules for regulating clearing houses based outside the European Union post-Brexit, in a move that could effectively tear up the U.S.-EU deal that took three years to negotiate.

“We’re watching this very carefully. We consider a deal a deal. We are very concerned about the dimensions of this proposal and what it would mean,” said Giancarlo.

The chairman, who was appointed to his role in August, added that regulators needed more broadly to rethink cross-border rule-making to focus on the riskiest activities.

“So many of these rules are not risk-based. Now we need to take a step back and say: ‘what is the intellectual underpinning? How to we get to some consistent application of rules cross border?’.”

Reporting by Pete Schroeder; Editing by Susan Thomas and James Dalgleish

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